1031 Partnership Possibilities

[Terrence Bayly]

If I own an investment property titled in my name and my business partner owns a separate investment property titled in their name, is there any arrangement where we could each sell our investment property and pool the funds to buy an apartment building together utilizing a 1031 exchange?

We have an operating LLC in which we are the sole members. Could we transfer title on our individual properties to the LLC, sell into a 1031 and then purchase a single like kind property in the name of the LLC?

Any other options? 

Thanks.

[Bill Exeter]

Hi @Terrence Bayly, 

One of the key requirements is that the investor that sells relinquished property had the intent to hold the relinquished property for rental, investment or business use. You and your business partner can each say that you did have the intent to hold your respective properties for investment purposes at this point in time. Contributing your respective properties into one multiple member LLC changes the ownership from individuals to a partnership for tax purposes and your "seasoning" or "holding" period really starts all over again in order to demonstrate the the LLC (partnership) had the intent to hold for investment purposes.

You could each sell today, each structure a 1031 Exchange on the sale of each of your respective relinquished properties, and then each identify a percentage/fractional interest in the new multifamily property as your replacement property inside your 1031 Exchange and each of you would end up acquiring an undivided interest in the property as tenants-in-common. You could each acquire your own undivided interest through a single member LLC and disregarded entity if you are worried about liability protection, which would still qualify for 1031 Exchange treatment.

There are a number of legal and tax issues here, so be sure to discuss with your legal and tax advisors before proceeding.